One of Uber’s biggest shareholders, Benchmark Capital, has sued co-founder and ousted CEO Travis Kalanick, claiming he has not honored the terms of his resignation and has been trying to change the makeup of the board to advantage himself.
Benchmark is suing Travis Kalanick (and Uber) over board control, claiming a ‘selfish’ power grab
The bad just got worse at the car-hailing company.
Along with claiming he wanted to “entrench himself for his own ‘selfish ends,’” the high-profile Silicon Valley venture firm has alleged that the pugnacious entrepreneur’s “overarching objective is to pack Uber’s Board with loyal allies in an effort to insulate his prior conduct from scrutiny and clear the path for his eventual return as CEO.”
Non-legal translation: “Steve Jobs-ing it,” except meaner. Really mean.
A Kalanick spokesman decried the lawsuit: “The lawsuit is completely without merit and riddled with lies and false allegations. This is continued evidence of Benchmark acting in its own best interests contrary to the interests of Uber, its employees and its other shareholders. Benchmark’s lawsuit is a transparent attempt to deprive Travis Kalanick of his rights as a founder and shareholder and to silence his voice regarding the management of the company he helped create. Travis will continue to act in the interests of Uber and all of its stakeholders and is confident that these entirely baseless claims will be rejected.”
Sources said Kalanick only found out about the lawsuit earlier today, which is just the way you knew this fantastically awful corporate drama about Silicon Valley’s most famous — and infamous — startup would go.
In addition, the rest of the Uber board not suing each other, which includes Arianna Huffington and David Trujillo from TPG, also only found out about the lawsuit after it was filed in Delaware.
(Update: The six board members who are not part of the lawsuit met tonight to discuss what to do about this mess, including how to best proceed with Uber’s CEO search despite this tension. They will likely release a statement tomorrow, said sources.)
According to sources, what prompted the lawsuit was Kalanick not yet signing an agreement he made with investors — including Benchmark, which owns about 10 percent of Uber — when he was forced out by them 52 days ago. (Yes, 52 days!)
He agreed then to give up his ability to appoint an additional three seats to the board, a power he held both directly or indirectly via ownership in common and preferred shares. Kalanick promised this in his resignation letter, said the sources.
Benchmark wants a preliminary injuction to remove Kalanick from the board. Which it apparently left him on after the ousting, since he was talking to candidates to replace him.
In fact, he definitely appeared to have occupied one of those seats, after giving up the ex officio seat he had held as CEO, which Benchmark is claiming it did not agree to, either. There are then two remaining seats and Kalanick has apparently not signed the document that would then return those seats to the board’s control.
Got it? Me either, but it is completely safe to say a very big mess just got messier (if possible).
A spokesperson for Uber — which is nominally named in the lawsuit for legal reasons I have no interest in explaining — declined to comment. (Excellent move!)
As to the current search for a CEO to replace Kalanick, as Recode previously reported, there are still three candidates to take over top leadership at the car-hailing company. Before this, the board had hoped to make a decision within two weeks.
But now, those directors are in full-scale war, so who knows if that will happen? Attention Jeff Immelt, the outgoing General Electric CEO who is still in the running for the job: You might want to duck.
Such a legal attack is, I think it is safe to say, unprecedented for any tech venture firm, as well as for Benchmark, especially since it concerns one of its most high-profile and lucrative investments.
By the way — okay, I will explain: The reason Benchmark also had to add the company to the suit is due to Delaware law, but it is not seeking any relief from Uber itself.
Just from Travis, whom the firm appears to want to decimate. Also dismember. Also smash into the ground. But just legally, so bygones!
Nonetheless, the lawsuit is potentially damaging to Uber, because it contains an awful lot of information about internal woes at the company, confirming a cornucopia of reporting done on Kalanick’s dysfunctional management. So, while it aims at him, Uber is obviously going to get strafed too, one source close to the board pointed out.
“This is only going to hurt Uber,” said the source. “It’s incomprehensible why Benchmark did this, although Travis should have signed the document.”
But — which comes as a surprise to absolutely no one who knows him even passably well — Kalanick did not. And here we are!
Oh yeah, lest we forget, Uber employees still at the company have to run its complex business operations in a deeply competitive market as if nothing were wrong.
Now, all we need in this legal wrangling is the Holder report — which chronicled a lot of this corporate disaster and more — to be part of the discovery in this case and it will provide an entire season of drama for the media.
Indeed. Already, five claims that Benchmark makes in the 38-page lawsuit to substantiate what they call Kalanick’s “gross mismanagement” are pretty gnarly and sometimes based on reporting done by Recode and others.
Largely, this allegation centers on failure by Kalanick to disclose much of anything to the in-the-dark board. Such as:
- Board seats: “Kalanick fraudulently obtained control of three newly created seats on Uber’s Board by his material misstatements and fraudulent concealment from Benchmark of material information that would have led Benchmark to reject the creation of the seats.”
- Waymo lawsuit: “The Waymo lawsuit presents significant legal, financial, and reputational risks to Uber — risks that could have been reduced or avoided if Kalanick had disclosed crucial facts about his own apparent knowledge at the time of the Otto acquisition.”
- India rape case: “The alleged mishandling of the India rape victim’s medical records — which has since understandably received significant press coverage and criticism — was known to Kalanick at the time of the amendments to the Certificate of Incorporation and the Prior Voting Agreement, but not disclosed to Uber’s Board or Benchmark at the time.”
- Sexual harassment: “The pervasive cultural issues explored in Covington’s investigation were known to and facilitated by Kalanick at the time of the amendments to the Certificate of Incorporation and the Prior Voting Agreement, but Kalanick did not disclose these matters to Uber’s Board or Benchmark at the time.”
- Program to track regulators called “Greyball”: “Upon information and belief, Kalanick was aware of the Greyball program at the time of the amendments to the Certificate of Incorporation and the Prior Voting Agreement, but Kalanick did not disclose these matters to Uber’s Board or Benchmark at the time.”
In closing, your honor, all I and my friends in the media (as well as Lyft) can say to Benchmark for dropping this nasty legal bomb on a Thursday in August: Thank you so very much.
This article originally appeared on Recode.net.
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